The reconstructed tape, sometimes called consolidated tape or time-aligned tape, is one technique that attempts to give a more precise and comprehensive depiction of order flow within a certain timeframe. Reconstructing tape data and its usefulness to traders are the topics of this article.

There are a number of calculations and tweaks that go into reconstructing tape, and they all contribute to a more precise result. Broken down step by step:

Step 1: Matching Orders

Reconstructing tape data begins with locating and matching specific orders, regardless of whether they were performed as a series of smaller deals. Time stamps, order sizes, and prices are only a few of the variables that are examined in a brief period to do this. In order to decipher the genuine underlying order concealed inside fragmented trade data, matching algorithms utilize techniques such as fingerprint matching and order book analysis. In this way, the true order flow can be better seen on the rebuilt tape.

Step 2: Trade Sequencing

Orders are sorted chronologically according to their actual execution timestamps after they have been matched. This process guarantees that the recreated tape faithfully portrays the order of events by removing the impact of delay.

Step 3: Replacement and Cancellation Process

The rebuilt tape makes sure everything is accurate by considering canceled and replacement orders. It is updated to reflect the new information for substituted orders, while cancelled orders are removed.

Step 4: Hidden Orders

Some order types are designed to be kept hidden from the public eye. Examples of these are iceberg orders and dark pool orders. While it may be impossible to expose them all, certain algorithms can analyze order book data and market behavior to determine the likelihood of these orders and their potential impact. Even if some details are hidden, this gives a fuller picture of the market.

Step 5: Combining and Summing

Time interval, price level, order type, and other parameters can be used to aggregate the rebuilt tape according to the desired level of information. Traders can examine market activity at various granularities, allowing them to spot patterns or trends that might not be obvious in the raw data. Market dynamics can be better understood when data is aggregated and consolidated.

Step 6: Verification and Quality Control

Several validation and quality control methods are put in place to guarantee that the rebuilt tape is accurate and dependable. To make sure the data is accurate, these checks could include running statistical tests, comparing the rebuilt tape to other data sources, and searching for discrepancies or unusual behavior.

In comparison to conventional time and sales (T&S) data, the rebuilt tape provides traders with a more precise, comprehensive, and chronologically ordered depiction of market activity because to these calculations and changes. By seeing the market in a more refined light, traders are better able to comprehend market dynamics, spot trading opportunities, and make educated decisions.

This is all, however, contingent on the quality of the code used to extract, organize and display the data. Finding a quality provider is crucial.

The following is an example of how this process works:

Example

Consider the following trade data for a particular instrument arriving at a trading platform within a 10-second timeframe:

Details: Trade ID, Time stamp (ms), Price, and Size

Trade ID Timestamp (ms) Price Size

1 10 $100.00 100

2 15 $100.02 50

3 20 $100.01 75

4 25 $100.00 25

5 30 $100.03 25

Fingerprint Matching

The program compares transactions by extracting information and calculating similarities using fingerprint matching. So, let's pretend we're thinking about these features:

Using an assumed 50-item average order size as a starting point, we get the order size ratio (OSR).

A price delta (PD) of $100.00 would represent the difference between the market price and the trade price.

The execution time delta (ETD) measures the elapsed time between two identically sized and priced trades.

Trade ID OSR PD ETD (ms)

1 2.00 0.00 0

2 1.00 0.02 5

3 1.50 0.01 5

4 0.50 0.00 5

5 0.50 0.03 5

Order Grouping and Matching

The algorithm finds the following matches using a predefined threshold of 0.1:

Due to their similar OSR and PD, as well as a tiny ETD, Trade 1 and Trade 4 are bundled as a single order.

Trades 2 and 5 are combined into a single order due to identical OSR and ETD and a tiny PD.

Trade 3 is still unmatched.

Tape Reconstruction

The reconstructed tape now accurately matches the underlying orders:

Order ID Timestamp (ms) Price Size

1 10 $100.00 125

2 20 $100.01 50

Other Things to Think About

This is a stripped-down version that merely shows fingerprint matching. It is common practice to include extra processes while reassembling tape, such as:

• Putting transactions in order according to when they actually execute is called trade sequencing.
• Adjusting the tape to reflect orders that have been canceled or replaced.
• Estimating the existence and influence of hidden orders is known as a hidden order estimate.
• Various levels of detail are presented on the tape through aggregation and consolidation.